22 September 2010

The End of Spanish Coal Subsidies?

Spain has sparked a row with Brussels over extending state subsidies for its coal industry. Spanish miners are engaging in public protests and strikes, putting pressure on the Spanish government to save their jobs from an EU plan to end coal subsidies. The EU is set to rule next week on the Spanish plan to extend and increase domestic subsidies for the coal industry. The FT reports:

Efforts by Brussels to end state aid to uneconomic coal mines could be damaged if the European Commission gives the go-ahead to a separate Spanish government plan that would double aid to the country’s coal-mining sector, European Union officials have been warned.

The controversial Spanish plan, which could cost billions of euros during the next four years, centres on giving preferential access to the wholesale electricity market for power plants that run on domestic coal.

It has strong political backing from Spain’s prime minister, José Luis Rod­ríguez Zapatero, who hails from Spain’s coal-mining region of Castilla y Leon.

The Spanish government has tried to justify the plan on “security of supply” grounds, arguing that there is a risk that indigenous coal plants could close, leaving supplies vulnerable when economic recovery kicks in.

Adding to tensions, miners at two companies in the north have threatened industrial action this week over unpaid wages, after staging road blocks, sit-ins and other protests during the past few weeks.

Spanish officials have latched on to a clause in the EU energy directive that allows a member state to give priority to the output from power plants using indigenous fuel, subject to a 15 per cent cap, “for reasons of security of supply”.
But the plan, which needs approval from competition authorities in Brussels because of the state aid element, is heavily opposed by domestic power producers and environmentalists alike, and has also been criticised by Spain’s domestic energy regulator and competition authority.

If anything, the European Commission's crackdown on coal-production subsidies is long overdue. Until now, Brussels has spared coal mining in its long-running war against industrial subsidies thanks to the miners' political clout, and so politicians have been able to keep high-cost and low-quality production alive on public life-support. In Spain, that amounts to an estimated €1 billion per year total being shoveled into the industry. Given this public largesse, it's hardly surprising that the EU's order could endanger the livelihoods of the country's 8,000 coal workers, and up to 40,000 jobs in peripheral sectors. Spanish coal workers have never had to conform to market demands before, so being forced to now may well be an existential threat to the entire industry.

While it seems hard to imagine that the EU will decide to extend the subsidies, both the FT and WSJ see it as a possible outcome. Whatever decision is reached, it will have far reaching implications for EU energy and climate policies, so it bears watching.

1 comment:

"While it seems hard to imagine that the EU will decide to extend the subsidies"

Only for those who don't understand the way the EU works!Spanish coalminers might not be able to cause as much disruption to the rest of the EU, as can French fishermen or farmers, but the EU's powerbrokers won't risk a strike in Spain and further civil unrest causing a decrease in popularity of the EU project, especially as the Spanish economy teeters on the brink.